Businesses warned to review late payment fees

27 Feb 2014

A University of Queensland consumer law expert has urged businesses to review their customer contracts in the wake of a Federal Court decision about ‘extravagant’ late payment fees imposed by the ANZ Bank.

TC Beirne School of Law Senior Lecturer Dr Paul O’Shea said the case of Paccioco v ANZ Bank had implications for a range of businesses beyond the banking and finance sectors.

“The case found that certain late payment fees were ‘extravagant and unconscionable’ and constituted unenforceable penalties on consumers,” Dr O’Shea said.

“This test case will obviously have consequences for all banks and finance companies.

“In future they will have to demonstrate that fees for late payments reflect the actual cost incurred by the organisation as a result of a late payment by the consumer.”

In the ANZ case, the Federal Court found that where the bank took special action for a late payment, such as a phone call or letter, the charge to the customer was $35 despite only costing the bank around $3 to administer.

“In some cases, the bank did nothing except add the fee to the account and, in those cases the late payment only cost ANZ 50 cents,” Dr O’Shea said.

The principles of the Federal Court decision can be applied to a wide range of consumer contracts where the supplier imposes a fee for late payment or other so-called ‘exceptional’ events.

He said industries likely to be affected included car hire, equipment rentals, electrical goods rentals, gym memberships, mobile phone contracts, weight loss clubs and plans and even travel agencies and airlines.

“All these businesses should be reviewing their contracts to make sure that any late payment or ‘exception’ fee is a genuine pre-estimate of the cost of the loss or damage caused by the consumer’s action,” Dr O’Shea said.

“Contracts can include fixed damages clauses to compensate parties for loss but they cannot impose ‘penalties’ which are like a fine. Only the government can do that.”